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EMERGING MARKETS- Latam FX rise as dollar gives up some gains

·3 min read

(Updates prices) By Susan Mathew Sept 19 (Reuters) - Latin American currencies firmed on Monday, erasing session losses in choppy trade, as the dollar gave up some gains ahead of a much-anticipated monetary policy decision by the U.S. Federal Reserve and several other central banks this week. The dollar, which had risen around 0.5% on Monday, was last trading up 0.2% with investors pricing in lesser chance of a 100 basis points hike by the Fed on Wednesday, and seeing stronger possibility of a third straight 75 bps hike. Rise in oil prices also helped Latam currencies. Brazil's real rose 1.6%, while Mexico's peso gained 0.4% after having lost 0.6% earlier in the session. Colombia's peso climbed 0.6%. But the environment remains one of risk aversion, analysts said. "As upside risks remain to the Fed hiking path, any relief from avoiding a 100bp hike may be short lived," said strategists at Citi Research. "We would therefore expect the USD rally to continue, even as the higher quality parts of Latam FX may continue to outperform given carry. The global environment for EM receivers remains difficult." Emerging markets more broadly cut session losses and with Latam currencies turning positive, MSCI index of developing world currencies erased gains to edge up, snapping a four-day losing streak. Stock markets remained in the red in choppy trade. MSCI's index of EM stocks, which has lost 24% so far this year as tight monetary policies across the globe fed recession worries, fell another 0.5% in its fourth straight session of losses. Argentina's Merval and Brazil's Bovespa outperformed. The Bovespa was up 1.8% thanks to gains in miner Vale, oil major Petrobras and banks. EM CENTRAL BANKS MOVES Several emerging market central banks also embarked on policy tightening cycles amid soaring inflation. This week, Brazil - one of the earliest to start raising interest rates - could pause after hiking by 1,175 basis points since last March, while South Africa is seen increasing by 75 bps to 6.25%. Turkey is seen holding its rate steady at 13%, having unconventionally cut rates despite runaway inflation. Meanwhile, most central European currencies firmed against a euro on Monday. Hungary's forint jumped 1.1% after marking its worst week in a month on Friday. But the country's euro-denominated bonds slipped to record lows after the European Union executive recommended suspending some 7.5 billion euros in funding over corruption. Key Latin American stock indexes and currencies at 1847 GMT: Stock indexes Latest Daily % change MSCI Emerging Markets 938.97 -0.55 MSCI LatAm 2172.56 2.29 Brazil Bovespa 111302.20 1.85 Mexico IPC 46480.65 -0.62 Argentina MerVal 150143.16 3.02 Colombia COLCAP 1204.80 -0.4 Currencies Latest Daily % change Brazil real 5.1772 1.57 Mexico peso 19.9602 0.35 Colombia peso 4401.71 0.64 Peru sol 3.8668 0.17 Argentina peso 144.3500 -0.57 (interbank) (Reporting by Susan Mathew in Bengaluru. Editing by Jane Merriman and Lisa Shumaker)